When a new UCR database is created, how will health plans change their out-of- network payment policies?

John Carroll

Almost two years ago, Health Net signed off on a settlement of three class-action lawsuits that would have far-reaching — and very expensive — implications for the managed care industry.

The health plan agreed to pay $215 million to more than 2 million members to settle accusations that its coverage of out-of-network claims was rigged in its favor. Central to the case was a database managed by Ingenix, a UnitedHealth Group subsidiary, which Health Net used to calculate the “usual, customary, and reasonable” rates providers charged for a service.

Health plans often agree to shoulder a percentage of out-of-network costs based on the UCR. If the UCR for a doctor’s visit is $125, for example, the insurer might pay 70 percent, leaving the balance of the bill to the patient. Ingenix was accused of reporting artificially low UCR rates, leaving consumers to foot a larger share of the actual bill. Without admitting wrong-doing, Health Net agreed to raise payments by 14.5 percent as it prepared to phase out use of the Ingenix database.

Judge Faith S. Hochberg of the U.S. District Court for the District of New Jersey said in summer 2008 that the settlement “raises a clarion call for greater disclosure about the databases used for health care coverage.”

The attorney general of New York, Andrew Cuomo, heard that call loud and clear.

Cuomo swiftly sued and secured multimillion-dollar settlements with some of the nation’s biggest insurers: Aetna, WellPoint, UnitedHealth, and others that operate in the state. Reaping more than $90 million in settlements from the insurers, he vowed to set up a not-for-profit group that would take over where Ingenix would be forced to leave off, providing accurate data to fairly share the bill. The rates would be published online.

The transition, he said at the beginning of this year, would take six months. But as I write this in late April, insurers are still waiting to hear who will take over. Several health plans are still facing off against the American Medical Association, which is angrily demanding in court that they recompense members for payment rates that it claims had been fundamentally fraudulent for years. There is a lively debate under way over the effect a new, public UCR database will eventually have on health plans and providers as they divide costs and hash out new payment rates.

In the meantime, some reinsurers see opportunity in the confusion, selling coverage to plans as they navigate from a payment system that has been in place for decades to a new system that has yet to take concrete form. The reinsurance is to protect plans from plaintiff’s lawyers, who could see a big opportunity in the transition.

The potential risk for health insurers is large. Cuomo says his office reviewed a million claims and found that doctors in New York were underpaid as much as 28 percent on their bills because of the way Ingenix engineered its system to allegedly ignore high-dollar claims to come up with a deflated average UCR rate. Two days after settling with Cuomo, UnitedHealth agreed to pay $350 million to settle a lawsuit the AMA and state physician groups had filed over out-of-network payments.

A rock and a hard place

Cuomo has been clear about what he wants.

Now that he has gathered a hefty fund from insurers, he has been pursuing talks to establish an independent not-for-profit group, probably at a New York university, to gather data nationwide and monitor UCR rates. With Ingenix out of the game, he says, doctors can earn the money they deserve for their work without penalizing members.

It has been a very persuasive argument, bringing in Consumers Union to help push for the change.

The deal sets the stage for “a world where there is less conflict of interest,” says Chuck Bell, programs director in Consumers Union’s Yonkers, N.Y. office. “If you contract for something, you should get what you contracted for. We look more at the consumer protection aspects, and one benefit is greater transparency on what the charges are.”

“Physicians were always skeptical that Ingenix was handling the data properly,” says Paul Ginsburg, PhD, president of the Center for Studying Health System Change. “One effect of the settlement will be transparency, sunshine. You’ll have a neutral, respected source doing the work in a much more public environment. And physicians will have more confidence in the process that determines what insurers pay for out-of-network care.”

“This goes a long way to removing the ‘black box’ where the consumer and doctor remained,” agrees Kristin McMahon, chief claims officer for Ironshore, which sells reinsurance. “It will go a long way to improve provider relations with insurers and patients, taking away the anti-managed care backlash that is still pervasive in society at large.” The transition to a new organization to handle the database, though, could leave insurers in a gray zone.

“The six-month time frame may be a little optimistic for getting this new database up and running,” says McMahon. In the meantime, she says, some insurers are using the old database until either their contracts with Ingenix run out or they can use the new database.

“Insurers,” she says, “are between a rock and a hard place.

“I think the not-for-profit database and entity may need additional funds,” McMahon adds. Insurers are also likely to be tapped for more cash as other states’ attorneys general get into the act. “And now plaintiff’s attorneys across the country will be filing lawsuits against health insurers, seeking compensation for their client subscribers and providers who they believe have been under reimbursed.”

“Each insurer has always been, and will continue to be, free to establish its own ‘system’ for setting out-of-network rates on medical services covered by its own insurance policies,” says the AMA in a written statement to MANAGED CARE. “Insurers will also continue to be free to determine the basis upon which they will reimburse health plan members for covered services provided by out-of-network physicians.”

Bowing to the inevitable

Several of the country’s biggest health plans have already said that they intend to switch to the new database once it is available, but there is considerable discussion about what will happen when a new system takes effect that promises to cast a public spotlight on reasonable rates.

But will insurers eat the extra amount? Will physicians cut their charges for out-of-network services if their patients can just go online to see how they compare? Or will some physicians see some big benefits in running the numbers up?

“It could lead some physicians to raise their charges” if they discover that their charges are comparatively low, offers Ginsburg. “It’s going to be a tough call. On the one hand, they might say, I can get more for the service. On the other hand, patients might be less likely to go out of network.”

That’s especially true during a recession, he adds, as consumers are changing old habits and steering away from anything that smells of higher costs.

“We can only expect that the new methodology will result in higher charges,” concludes Mark Rucci, senior vice president of Gallagher Benefit Services, a consultancy.

It doesn’t necessarily follow that consumers will get a break or that either insurers or the companies that they administer benefits for will pay more, says Rucci.

If a health plan is covering 90 percent of the out-of-network cost now, he says, it is easy to change that to 80 percent — or some other amount — to reflect the bump in cost. In the end, he adds, it is the consumer who is likely to wind up paying more — either directly to the out-of-network provider he is seeing or through higher insurance costs.

“If the [health care purchaser] is fully insured,” says Rucci, “it hits the insurance company. Then it just turns into future rate increases.”

For now, managed care organizations are operating in limbo.

A spokesperson for Aetna says that company will continue to use the Ingenix database until the new one is available. WellPoint says it is obligated to stop using the Ingenix database “within 60 days of being informed by the New York attorney general that the new database is available for use.”

“There’s been almost no information about the new database,” says a spokesperson for Health Net. Once it is available, the company will explore its use. It also will consider adopting the Medicare fee schedule.

For providers, an ideal world would always include filling waiting rooms without negotiating a discounted rate with an insurer, the consultant Mark Rucci adds. Once payers see their dollars flowing to an out-of-network provider, they get busy trying to bring them into the network.

Boost on the way

Ironically, at a time when the heat is on to control health care costs, says Rucci, the coming independent agency is likely to find some providers looking to boost those UCR rates even higher.

“Physicians can manipulate the numbers,” says Rucci. “That was always there. There are a lot of instances in local communities where doctors know that the definition of reasonable and customary is what 90 percent of the doctors in that community will accept.”

If there are a handful of specialists in an area, one or a few practices can manipulate the UCR by raising fees 20 percent in one year. “That will show up in the data,” he says.

As for cost controls: “There is nothing in these changes that seems to address that at all.”

Gil Weber, MBA, a practice management consultant in Florida, doesn’t believe that health plans can afford to just pass on all higher costs.

At a time when the health insurance business is under the gun from a severe recession, he says, plans won’t quickly choose to transfer costs and risk losing more members.

“They will go with the flow and recognize that they may have to eat part of the cost,” says Weber, a practice management consultant who helps doctors negotiate with health plans. “It was never a level playing field; it was always tilted in favor of the payer. They write the contracts and set the rules. Regulators can tip the field back toward level.”

In this case, a level field leads doctors to get much more choosy about which health plan network contracts they sign and what discounts they will offer.

“The inherent problem with managed care contracting is that health plans are very good at playing the fear card,” says Weber.

Being denied access to patients enrolled in a health plan, denied the income they could harvest caring for them, is at the root of doctors’ fear. “Because physicians feel they need to join networks,” says Weber, “they will sign contracts that are awful.”

Until now, he says, managed care companies have been effectively manipulating the system to make practicing medicine out-of-network even less appealing to doctors by shifting more of the cost to consumers through the Ingenix rate system.

“It causes problems for the doctor if it shifts the cost to patients,” he explains, especially when patients refuse to pay.

Greater transparency and some flexible finance arrangements could change the way some physicians practice medicine — and who they choose to contract with.

“For example,” says Weber, “by going out-of-network, the patient will incur significantly more cost than in-network. If a doctor offers a payment program through a company that offers patients financing, that’s an incentive for the patient to come. It will cost $1,000, let’s say, but I can spread it out over four payments at a nominal interest rate. All of a sudden, while it is more costly to go out of network, it is not an onerous amount.”

One thing is certain, says Weber: “Market forces will drive this in the end.”

“Plaintiff’s attorneys across the country will be filing lawsuits against health insurers,” warns Kristin McMahon, chief claims officer for Ironshore, a reinsurer.

“Health plans are very good at playing the fear card,” says Gil Weber, MBA, a consultant who helps doctors negotiate with insurers.

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